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Faculty Salary Inversion, Compression, and Market Salary Gap in California State University Business Schools

Extant literature has examined the relationship between seniority (or rank) and pay in tenure-granting academic institutions along with proposed remedies. This article examines faculty salary compression, inversion, and market salary gap in business schools in the California State University system.

Homer, Pamela Miles, Herbert G. Hunt, III, and Lowell Richard Runyon (2020), "Faculty Salary Inversion, Compression, and Market Salary Gap in California State University Business Schools," Employee Responsibilities and Rights Journal, in press.

The purpose of this study is to expand on previous faculty salary compression and inversion literature that offers limited insight into the situation faced by the CSU system. We assess these phenomena via estimated full rank salaries (across nine campuses in the teaching-oriented California State University (CSU) system) based on the notion that in the absence of compression and inversion, forecasted full rank salaries should be comparable across faculty ranks. The CSU system offers a unique set of circumstances (e.g., Collective Bargaining Agreement (CBA) restrictions and mandates) that has enabled and perhaps nurtured salary compression and inversion in the field most impacted by increasing faculty market salaries. To date, to our knowledge, no other studies examine salary compression/inversion in an institutional system with a similar set of such restrictive characteristics. We first present findings that show a consistent pattern of salary inversion and compression in the Colleges of Business (COB) at nine CSU campuses not evident in other academic colleges. Specifically, the campuses for which we secured salary data (April 2019 pay warrants) are Fresno, Fullerton, Long Beach, Los Angeles, Northridge, Sacramento, San Bernardino, San Diego, and San Jose. These nine campuses serve 60% of the CSU student population (N=481,929). Secondly, we present evidence that there is an increasing gap between market salaries and current salaries for COB faculty. Third, we show that the data for one of the largest CSU Colleges of Business suggests that this compression and inversion constitute a form of age discrimination. In addition, the patterns of compression support the notion that salaries in CSU COBs are becoming more inverted as the gap between market and current salaries increases.

From a theoretical perspective, our data are consistent with many of the underlying tenets of the internal market theory that predict that new hire salaries are driven most by the external market whereas salaries for senior faculty reflect internal traditions and budget constraints. As per this framework, new hire salaries in the CSU COBs are tied in part to the external market, but there are also secondary limits set by the administration (e.g., the Provost traditionally sets a maximum that any new assistant can earn). Pay for existing faculty are driven more by internal university norms and the current negotiated CBA which prohibits merit raises. Unlike well-endowed research-oriented institutions, the CSU COBs are constrained by university budgetary restrictions that prevent deans from offering higher than normal salaries to new assistant professor “superstars”. While CSU campuses have some flexibility to offer “perks” (e.g., summer support, graduate assistants), these typically are greatly lacking compared to incentives offered by elite schools. Our findings are also important in general for the literature examining empirical effects of monopsony in labor markets (Neuman and Wallace 2018). The fact that many senior faculty are willing to work for schools with inverted/compressed salary structures is consistent with past monopsony power and mobility cost arguments. The inequitable salary structure reported in this article is unfair to long-term faculty for the obvious financial reasons (e.g., it negatively impacts pension benefits) and it has a demoralizing impact that is difficult to estimate.